From "richest man in the world" to homeless - in a matter of months?
A reader asks what I thought about Elon Musk buying Twitter. My first reaction, having worked for Fortune 500 companies (and represented some as well) is that in the "good old days" our CEOs were reserved and serious people who wore expensive suits and ties and were not to be trifled with. They were not big goofy overgrown kids who said outlandish things or performed stupid stunts like carrying an old sink around to make a really, really stupid pun.
But maybe, once again, our generation won, and today, well, we all dress and act like big goofy overgrown kids. So maybe this is the new norm - mentally-ill Billionaires.
What is the deal with this deal? Musk buys a company that is losing $1B a year, and then saddles it with interest payments of $1B a year, and advertisers are already fleeing. GM pulled its ads from Twitter, which was a smart move. If they waited for odious content to appear on the site, they would be accused of "cancel culture" by the far-right. This way, they have pulled a preemptive strike, and walk away with clean hands - and saved themselves a ton of dough.
If other advertisers - and users - follow suit, what is left for Twitter's business model? Musk himself claimed the site was mostly bots. Few ordinary people use Twitter - as opposed to say, Facebook (which has its own subscriber problems). It is - or was - popular with the media, who would concoct an entire front-page story from one 144-word Tweet. Lately, however, it seems that the media is fixated on Reddit - there is more "red meat" (pun) there to work with. Reddit, like the mainstream media, loves a good outrage story.
Financially, the people who made out in this deal - besides executives who get golden parachutes - are the shareholders. Musk paid far too much for the money-losing company, and even in the days leading up to the sale, the share price was below the buyout price. So those executives he fired, in addition to getting golden parachutes, are probably exercising very lucrative stock options as well.
Of course, Musk is a large shareholder as well, but since he is buying the company (and not selling) he doesn't get to cash in on this deal. He is left holding the bag. As the above chart illustrates, he is paying a huge premium for the company (well, he and the Saudis and the hapless banks who agreed to loan him the money).
But speaking of those banks, I'll bet they made him pledge his shares in other companies (Tesla, SpaceX) as collateral for the loans, because the Twitter stock wasn't worth the amount he was borrowing. If they were ever to call those notes.... Musk might have to sell off a lot of stock or even entire companies. We'll see.